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The U.S. Crude Export Boom and the Midstream Opportunity

We favor Enterprise Products Partners, Tallgrass, and Magellan.

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Expanding on our overarching theme of U.S. hydrocarbons (gas, oil, or natural gas liquids) increasingly being exported, we forecast U.S. crude-oil exports of 4 million barrels per day by 2020. This is sharply higher than consensus estimates of 1.4 million-2.25 million bpd. We believe the consensus forecasts underestimate the ability of U.S. oil supply, particularly from the Permian Basin, to increase over the next few years and lack a clear understanding of the ability for the United States to export oil in size, given that the country only essentially allowed exports to take place beginning in 2015. We think that only midstream companies that own all of the assets in the midstream value chain will be able to fully participate in the U.S. crude-oil export opportunity, limiting it to a few such as  Enterprise Products Partners (EPD),  Magellan Midstream Partners (MMP), and  Tallgrass Energy (TGE).

Crude Exports Offer Underappreciated Opportunity
Crude-oil exports averaged about 2 million bpd in 2018 and will increase to 4 million bpd in 2020 and 5.7 million bpd by 2023. Meanwhile, consensus estimates are as low as 1.4 million bpd in 2020. A large part of the reason behind our optimism is our work on U.S. crude-oil supply, which we expect will increase to 14 million bpd by 2020 from 9.4 million bpd in 2017, led by the Permian Basin. As a result, there is a substantial opportunity for midstream entities to build new crude-oil export terminals and support their economic moats, with Enterprise Products Partners our favorite way to play this trend. Numerous midstream entities have announced projects under development to start up in the next few years.

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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.